By Chinelo Obogo
The Nigerian Civil Aviation Authority (NCAA) has raised the alarm that domestic airlines are in a financial freefall, pushing the industry to the brink of collapse. With skyrocketing operational costs and shrinking revenue streams, experts are unanimously calling for innovative funding solutions to rescue beleaguered operators.
As the clock ticks, aviation stakeholders, who attended the South-West Regional Air Transportation Summit in Lagos on Wednesday, emphasised the need for decisive action to safeguard the future of Nigeria’s aviation sector.
Speaking at the event, the Director of Aerodrome and Airspace Standards at the Nigerian Civil Aviation Authority (NCAA), Godwin Balang, who represented the acting Director General, Capt Chris Najomo, painted a worrisome picture of the realities on ground.
“There are no maintenance facilities for our airlines in Nigeria. All the major checks that are carried out by our airlines are done outside the country. For Boeing 737, the minimum cost is $600,000, and that is just for scheduled checks. We carried out a financial audit on the airlines and, to be sincere, if we are to go by the financial audit, everything should be on the ground. That is the reality. But we are flying and someone is paying the price. To be sincere, we are going deeper and deeper into this issue, and we cannot continue like this”, he said. The summit was themed: ‘Repositioning the Nigerian Aviation Industry for Financial Capability and Economic Viability: An Inclusive Regulatory Dialogue.’
Most stakeholders present at the summit also agreed that Nigeria’s aviation industry is facing a dire financial crisis, exacerbated by high operating costs, outdated infrastructure, and limited access to financing. One of the speakers, Dr. Jekwu Ozoemene of The Alternative Bank, who spoke on “Strategic Funding for Sustainable Growth in the Nigerian Civil Aviation and Air Transportation Sector,” said the industry is at a critical juncture and is facing a number of significant challenges that threaten its sustainability. He lamented that the lack of regular maintenance and investment in new infrastructure has left much of the country’s airport infrastructure outdated and insufficient. He said these inadequate facilities continue to stifle the growth of the airline industry, and the capital-intensive nature of the aviation industry, combined with perceived high risks, has made traditional commercial banks hesitant to provide long-term credit. This, he said, has stunted fleet expansion, fleet maintenance, and operational efficiency.
“Many of our airports are not equipped to fully leverage the value chain opportunities within the aviation sector, making them less attractive to investors. This, in turn, results in decreased passenger volumes, operational inefficiencies, and loss of business. Operating costs remain a key issue, especially with escalating prices for aviation fuel, high taxes, and costs,” he said.
He, however, proffered solutions. He said there is an urgent need to explore alternative and suitable funding sources, and one often overlooked but promising tool is ethical non-interest banking. He said several non-interest banks like The Alternative Bank are already active in Nigeria, and their funding models can provide the aviation sector with much-needed financial flexibility, particularly in addressing infrastructure challenges. He said this can be achieved through various means, such as Sukuk Aviation Bonds. Non-interest banks, in collaboration with other stakeholders, he said, can issue Shariah-compliant financing instruments to tackle infrastructure deficiencies, fleet renewals, and airport expansion projects. These bonds offer tangible results to investors, revealing that a notable example is Etihad’s US$600 million Sustainable Sukuk issued in November 2020.
He also cited syndicated loans, which he said can occur when multiple banks form a consortium to pool funds, share risks, and provide loans to the aviation industry. “These financing mechanisms are highly attractive to investors because they are asset-backed and comply with the principles of ethical investment, providing a secure and responsible investment opportunity,” Ozoemene said.
Aviation expert, Dr. Emeka Okengwu, who spoke on “Leveraging Global Aviation Finance Mechanisms: Reminiscence of the Cape Town Convention,” said that airlines aren’t profitable, but aircraft are if their legal and operational covenants guiding their ecosystem are adhered to strictly. He, however, said that at the moment, no Nigerian airline is listed on the global alliances or even at the associate member or interlinks co-share. He also noted that there are obvious systemic issues that bother on the absence of a functional Corporate Governance Structure among airline operators.
He said the present leadership of the Nigerian aviation industry has shown capacity to place it on the global aviation market, but concerted efforts must be made to create pathways into the global alliances if the sector would stand a chance of playing on the world stage.
He suggested the Cayman Islands orphan SPV structure as a possible pathway for Nigerian airlines to utilize the Cape Town Convention in getting funding. “The Cayman Islands is a leading offshore jurisdiction for commercial aircraft financing and leasing transactions. Its tax neutrality, combined with a commercially flexible civil aviation authority and depth of expertise, makes the Cayman Islands a market leader in the structuring of such transactions.
“Airlines, operating lessors, and lenders have grown familiar with the typical ‘off-balance sheet’ or ‘orphan’ structures, affording bankruptcy remoteness of the underlying asset. The extension of the Cape Town Convention non-International Interests in Mobile Equipment and the associated Protocol on matters specific to Aircraft Equipment, the Cayman Islands, reinforces the jurisdiction’s sophisticated aircraft finance capability,” he said.
The chairman of the Senate Committee on Aviation, Abdulfatai Buhari, who was also at the summit, said the Nigerian public doesn’t know what the Cape Town Convention means, and all they want is to get good services from the agencies and the airlines. He urged the NCAA, the industry regulator, not to fail Nigerians, saying, “We want to see your performance in the domestic convention, good service delivery,” he said.
Buhari expressed displeasure at airlines operating to so many routes with just two aircraft, stating that if an airline has just two aircraft, it should concentrate on one or two destinations and offer regular flights and quality services, pending when it is strong enough to expand its services, rather than operating to so many destinations and disappointing passengers.
He said it is for such reasons that the Senate is proposing stricter rules for Nigerian airlines that would mandate carriers to have a minimum of four to five aircraft before commencing operations. He said that the bill would help improve the capacity of Nigerian airlines and address the issues of flight delays and cancellations that have plagued the sector. The proposed regulations, he said, align with the policy of the NCAA, which requires airlines to have a minimum of six aircraft in their fleet by January 2025. However, the Senate’s bill goes a step further, demanding a higher number of aircraft for new entrants.
The NCAA’s existing policy also stipulates that at least four out of six aircraft must be airworthy at all times. This means that airlines will be required to suspend operations if their fleet falls below the minimum requirement. Senator Buhari stressed the importance of passenger satisfaction in the aviation industry and criticized the practice of airlines overloading themselves with multiple routes that they cannot adequately serve, leading to frequent delays and cancellations.
“Nigerian airlines should operate within their capacity and prioritize the comfort and safety of their passengers. We need to implement stricter regulations to ensure that the sector meets international standards and competes effectively with foreign carriers.
“Nigerian airlines should be professional. Nigerians want to see confidence; they want comfort and want to be assured of safety. If an airline has just two aircraft, it should operate within the confines of its capacity and not overburden itself with multiple routes that can’t be served. It is sad to experience delayed flights; we need to do the right thing for the sector to excel and compete favorably with our counterparts. We are working on a bill that will make it mandatory for prospective and existing airlines to have a minimum of four or five aircraft to start operations,” he said. He equally advised service consumers and air travelers to change their orientation of accepting travelers’ rights violations, stressing the need to file court cases against such violations and poor service quality. The Minister of Aviation and Aerospace Development, Festus Keyamo, who was represented by the Managing Director of the Federal Airport Authority of Nigeria (FAAN), Olubunmi Kuku, said that adopting prudent financial practices, reducing operational costs, and exploring new revenue streams are crucial for financial sustainability.